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Simple English definitions for legal terms
rule of marshaling remedies
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A quick definition of rule of marshaling remedies:
The rule of marshaling remedies is a fair rule that says if a person owes money to two or more creditors and has different funds to pay them back, the creditor who is owed money first must use the fund that the other creditor cannot use. This is to make sure that the second creditor is not left with no way to get their money back. It is also called the marshaling doctrine, rule of marshaling securities, or rule of marshaling assets.
A more thorough explanation:
The rule of marshaling remedies is an equitable doctrine that requires a senior creditor, who has two or more funds to satisfy their debt, to first dispose of the fund not available to a junior creditor. This rule prevents the senior creditor from choosing to satisfy their debt out of the only fund available to the junior creditor, which would exclude the junior creditor from any satisfaction.
For example, suppose a debtor owes $100,000 to two creditors: Creditor A and Creditor B. The debtor has two assets: Asset X and Asset Y. Asset X is worth $80,000, and Asset Y is worth $50,000. Creditor A has a lien on Asset X, and Creditor B has a lien on Asset Y. In this case, the rule of marshaling remedies requires Creditor A to first satisfy their debt from Asset Y, which is not available to Creditor B. Only after Creditor A has exhausted Asset Y can they satisfy their debt from Asset X, which is also available to Creditor B.
The rule of marshaling remedies ensures that junior creditors are not unfairly excluded from any satisfaction. It is an essential principle of equity that promotes fairness and justice in debt collection.